U.S. keeps low profile on European debt crisis

WASHINGTON (Reuters) - Adamant that Europe must take the lead in solving a debt crisis that began in Greece, U.S. officials have weighed in publicly with only carefully measured comments.

But privately, President Barack Obama and his aides have counseled bold action to calm the storm in the financial markets.

They breathed a sigh of relief after markets welcomed the dramatic $1 trillion rescue package, but remain concerned that the fallout could stifle the fragile U.S. economic recovery.

"Our economic team and the president have been engaged over the course of many weeks in monitoring the situation that was going on with many of these countries, encouraging them to take the steps that are necessary... because of a fear that anything might stem the recovery that we believe is taking place," said White House spokesman Robert Gibbs.

At the U.S. Capitol, lawmakers cautioned that Americans should see Europe's debt woes as "a wake-up call" and said Federal Reserve Chairman Ben Bernanke helped frame the issue for them in explaining why the U.S. central bank was chipping in with special "swap lines" to aid its European counterparts.

"Chairman Bernanke explained what was going on in Europe, it was basically a European problem but with ramifications, probably, on a lot of our banks and our banking system if there was no intervention," Senator Richard Shelby of Tennessee told reporters after a closed-door briefing by the Fed chief.

HIGH STAKES

Others said the stakes for the United States were high, especially since other European Union members like Portugal, Spain, Italy and Ireland also are running high debt levels.

If the European crisis does not stabilize, there is a risk the U.S. economy could stall again just as its prospects were beginning to brighten, said Tony Fratto, a former Treasury and White House official.

"We're in a slow growth recovery," he noted. "It would not take much to get growth down to zero or 1 percent."

The currency swap lines the Fed put in place ease pressure on European banks by letting them swap euros for dollars, if necessary, on short notice to handle emergency situations.

The Fed's action represents limited participation in the European rescue bid -- but it is nowhere close to reflecting the anxiety that U.S. officials felt as European countries dithered for weeks about what to do.

Obama was on the telephone to German Chancellor Angela Merkel over the weekend and to French President Nicholas Sarkozy, to make his concerns felt.

"They discussed the importance of the members of the European Union taking resolute steps to build confidence in the markets," a White House official said. "The president also spoke to Chancellor Merkel on Friday and has spoken to her periodically on this issue over the past several weeks."

Obama added another European leader to his call list on Tuesday: Spanish Prime Minister Jose Luis Rodriguez Zapatero.

The White House said the two leaders "discussed the importance of Spain taking resolute action as part of Europe's effort to strengthen its economy and build market confidence."

Other White House officials, notably chief economic adviser Lawrence Summers and Treasury Secretary Timothy Geithner, worked the telephones through the past weekend and the lights burned late at the next-door Treasury.

"Secretary Geithner was on the telephone throughout the weekend with his Group of Seven counterparts and with senior European Union officials," a Treasury spokesman said.

Their message was straightforward: act boldly and recall the U.S. lesson of 2008-2009 when the Bush administration persuaded a reluctant Congress to approve a massive $700 billion Troubled Asset Relief Program. While politically unpopular, the U.S. rescue plan convinced markets that authorities were serious about keeping banks afloat.

SHOCK AND AWE, AGAIN

For William Galston, a former Clinton administration aide, Obama made the right call in deciding to throw his weight behind the drive for a huge bailout to stymie market speculators with a "shock and awe" show of determination.

"My assumption is that the president made a judgment that the risks are too high to continue slow incremental action and at that point he said 'hey guys we all have a stake in this.'" said Galston, who is now with the Brookings Institution.

"Clearly the president wouldn't have acted like he did out of pure altruism. He's worried about the linkage to our economy," Galston said, adding that he fears the European effort may only be "a patch on a very leaky boiler."

That worry was evident elsewhere on Tuesday. The euro, the currency used by 16 European nations, weakened again on doubts over whether European countries can deliver the severe debt cuts they pledged on the backs of their citizens.

The United States, struggling with a deficit projected in the February budget to hit $1.56 trillion in fiscal 2010, has its own debt problems. The budget forecast that U.S. public debt will top 71 percent of gross domestic product by 2013 and exceed 80 percent by 2020 -- levels that may spook investors.

Speaking after Bernanke described the Fed's role in aiding Greece, Senator Bob Corker of Tennessee said that should jolt Americans into seeing the urgency of controlling spending.

"We could very well end up in the same place without having the courage to do the things that are necessary in this country," Corker warned.

(Additional reporting by Steve Holland and Jeff Mason; editing by Chris Wilson)